The powers of the European Commission in terms of eurozone countries budgets and placing a country facing threat of default under 'legal protection' - these were the most discussed issues during the debate on the so-called ‘Two Pack’ in the economic committee (ECON) of the European Parliament. The package includes two regulations proposed by the Commission on 23 November 2011, complementing the legislative package on economic governance (the so called ‘Six Pack’), adopted last year. The first regulation is aimed at strengthening economic and budgetary surveillance of Member States experiencing or threatened by serious difficulties, with respect to their financial stability in the euro area. The second regulation sets common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area.

euinside has already published a detailed analysis of the changes, made on the Commission`s texts by two parliamentary rapporteurs Jean-Paul Gauzes (EPP, France) for monitoring countries with rescue programmes and Elisa Ferreira (Socialist & Democrats, Portugal) for enhanced budgetary surveillance in the euro area. The discussion in the economic committee showed great variety of positions of the political groups on the different parts of the two regulations. This means that until the final vote a compromise should be found between the political forces, in parallel with the negotiations with the Council of EU Finance Ministers.

Jean-Paul Gauzes MEP told his colleagues that he had included some proposals made by the Working Group of the Council in the report. As most important changes he highlighted the integration of the intergovernmental treaty (known as the fiscal compact and signed on 2 March) in the Regulation; the Council to be entitled to reject a Commission`s decision by simple majority; the procedure for placing a country under legal protection. The latter is very important, because although some argue that Greece is an exceptional case and it would not happen again in the future, I'm not at all convinced of that, Jean-Paul Gauzes said. He explained that the procedure was not fundamentally different from the existing one for companies, threatened by bankruptcy. The difference is that there must be clarity in terms of the democratic functioning of the country placed under legal protection. We should discuss how we can oblige governments to take certain steps, the rapporteur said.

Ms Ferreira, who is a shadow rapporteur on behalf of the Socialists on Jean-Paul Gauzes's report, supported the idea of introducing the legal protection procedure. However, she called on for clarification of the criteria when it should be triggered. Another objection of Ms Ferreira's was related to the Commission's right to force a country to request financial assistance. According to her, a country could not be obliged to do that, provided that there was no guarantee that the European rescue fund would allocate the bailout. EPP MEP Diogo Feio (Portugal), however, made it clear that the Commission`s power to force a country to request assistance was essential.

The EU finance ministers also discussed this issue at their meeting in January. They shared the opinion that a member state could be forced to ask for help, but it should be done in strict confidentiality until the decision on the loan was taken by the rescue fund. As to the possibility the rescue fund to prove unable to decide on granting the bailout, this problem was solved with a change in the Treaty on the European Stability Mechanism (ESM). The permanent bailout fund will be able to decide by a majority of 85% rather than the usual unanimity. The fund will start functioning in July 2012.

A dispute has emerged between the Socialists on the one hand and the EPP and the liberals on the other, in terms of including the fiscal compact in the Commission regulation. On behalf of the Liberals, Carl Haglund (Finland) expressed full support for this approach, but he questioned the value of only 0.5% allowable structural deficit in the treaty. He was challenged by Liem Hoang Ngoc MEP (Socialist & Democrats, France), who generally disagreed with putting the fiscal pact in secondary legislation. Mr Gauzes is playing "The sorcerer’s Apprentice"* and is trying to slip the golden rule through the back door, the Socialist said.

Like the liberals, Derk Jan Eppink (European Conservatives and Reformists, Belgium) disagreed with the decision of the rapporteur to delete completely the text, which provided for the suspension of EU funds as a sanction for countries not complying with their commitments. The MEP also suggested, based on the Netherlands` proposal from the last year, in the framework of the legal protection procedure, countries to be given a choice - if they do not want to cede their sovereignty, to leave the eurozone.

Sylvie Goulard (ALDE, France) proposed to be set provisions in the context of the legal protection procedure to freeze private assets abroad. She gave the example of Greece, saying that you could not require European solidarity without showing domestic solidarity, while wealthy Greeks were exporting their assets abroad. Rapporteur Jean-Paul Gauzes explained that this was very difficult to be done, moreover when it came to countries outside the European Union.

As regards the report on enhanced budgetary surveillance in the euro area, the rapporteur - Elisa Ferreira - highlighted as the most important change, compared to the Commission proposal, the requirement enhanced budgetary surveillance to be accompanied by immediate establishment of a debt redemption fund in the euro area and a road map for the implementation of stability bonds. "The fund will be a genuine firewall against excessive speculation of sovereign debt of eurozone countries," Ms Ferreira said. "This ‘quid pro quo’ approach lifts irony to another level," Belgian MEP Derk Jan Eppink (ECR) noted sarcastically. He said it would undermine the attempts to impose fiscal discipline in troubled countries, violate the no-bailout principle and erode the single currency. The MEP believed that the rapporteur had watered down the Commission proposal by limiting its powers.

Linking the increased monitoring by creating a debt redemption fund, as proposed by the German Council of Economic Experts, was met by warm support by the Liberals, in the face of Sylvie Goulard and Ramon Tremosa i Balcells (Spain). "I hope us to convince the European People's Party to support this idea, in order to convince the markets that we are going toward more economic and financial integration", the Spanish MEP said. Liberals also insist that the Commission should have the widest possible powers at the expense of the Council.

In this respect, the Liberals met opposition from the Greens MEPs, in the face of Philippe Lamberts (Belgium). He again warned that the Commission should not be granted so big powers without being accountable: "When in any political system you are giving any institution unrestricted powers, not checked by any other institution, you are no longer in democracy." According to Philippe Lamberts, in fact the national parliaments will receive the draft budgets, after they have been agreed in advance between the Government and the Commission. "This is just formal democracy, which we know in the National people’s congress in Beijing, but not in Brussels." Although without expressing so extreme positions, all MEPs supported the proposal the European Parliament to have a role as in budgetary surveillance, so in monitoring troubled countries, in order to strengthen the democratic legitimacy of the process.

The lawmakers have yet to make amendments and discuss both texts. The ECON Committee in Parliament will vote on the regulations in mid-April.